Macklem says ‘we need to stick the landing’ as inflation falls #CanadaFinance

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Bank of Canada governor Tiff Macklem says he is pleased inflation has moved back to the two-per cent target, but that the central bank still needs to “stick the landing” in the fight against rising prices.

“It has been a long journey,” said Macklem, during remarks at an event hosted by the Institute of International Finance and the Canadian Bankers Association in Toronto. “Now we want to keep inflation close to the centre of the one-to-three per cent inflation control band.”

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The central bank has made three consecutive cuts of 25 basis points since June, bringing the policy rate down to 4.25 per cent. This month, the U.S. federal reserve made its first cut to its benchmark rate in over four years, cutting by 50 basis points.

Though Macklem said Canadians can expect further interest rate cuts, he did not comment on the timing and the pace of cuts going forward, noting the central bank will make such decisions one meeting at a time based on incoming data. A growing number of economists are speculating the bank could cut by 50 basis points at its next meeting in October.

Macklem highlighted the need for core inflation to continue to ease and for economic growth to pick up in the second half of the year.

“We will be closely watching consumer spending, as well as business hiring and investment,” he said. “Shelter cost inflation remains elevated but has started to come down, and we are looking for it to moderate further.”

Macklem also touched on the theme of the event, “Growth in a time of uncertainty.” The central banker said that uncertainty is the new norm, pointing to shifting global trade dynamics, the rise of artificial intelligence, political uncertainty and fiscal uncertainty.

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“At the same time, we need to recognize that new uncertainties are a new reality, and we must be ready for the inevitable shocks in a more turbulent world,” Macklem said. “That puts a priority on risk management and investments in resilience.”

Financial institutions have a role to play in mitigating the risks faced by households and businesses, according to Macklem. Additionally, banks should manage their own risks accordingly as well.

Since May, when the central bank released its financial stability report, Macklem said mortgage arrears have continued to rise, but remain under pre-pandemic levels.

Still, an issue of bigger concern is the financial stress observed among households who rent, which have relied more heavily on credit compared to mortgage-holding households.

“Over the past year the share of borrowers without a mortgage who carry a credit card balance of at least 90 per cent of their credit card limit has continued to climb,” Macklem said. “And this share is now above typical historical levels. This is concerning.”

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